1 Consolidated Financial Statements

Question 1

What is a parent?

Answer 1

An entity that controls one or more entities

Question 2

What is a subsidiary?

Answer 2

An entity that is controlled by another entity

Question 3

What is a group?

Answer 3

A parent and its subsidiaries + associates

Question 4

Describe IFRS 10

Answer 4

This details the single entity principle, which means that a group should be presented as a single economic entity. All intra-group transactions should be eliminated

Question 5

What is an associate?

Answer 5

When there is significant interest

Question 6

What is the % control for a subsidiary?

Answer 6

> 50%

Question 7

What is the % control for an associate?

Answer 7

20-50%

Question 8

What is an investment?

Answer 8

Something gained for increasing wealth

Question 9

What % control is an investment?

Answer 9

<20%

Question 10

How do you consolidate a subsidiary?

Answer 10

Fully consolidate using the acquisition method

Question 11

How do you consolidate an associate?

Answer 11

Using equity accounting

Question 12

How do you consolidate an investment?

Answer 12

As for a single company IFRS9

Question 13

What is control?

Answer 13

An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee

Question 14

Three criteria for control

Answer 14

An investor controls an investee if and only if the investor satisfies all of these:
1. Power over the investee;
2. Exposure to, or rights to, variable returns (positive or negative) from its involvement with the investee; and
3. The ability to use its power over the investee to affect the amount of the investor’s returns.

Question 15

How can power/control be obtained?

Answer 15

Power can be obtained directly from ownership of the majority of voting rights (shares) or can be derived from other rights, such as:
1. Rights to appoint, reassign or remove key management personnel who can direct the relevant activities
2. Rights to appoint or remove another entity that directs the relevant activities
3. Rights to direct the investee to enter into, or veto changes to, transactions for the benefit of the investor
4. Other rights, such as those specified in a management contract

Question 16

When can subsidiaries be excluded?

Answer 16

IFRS 10 does not allow subsidiaries to be excluded except for when:
* The subsidiary is held for sale
* The subsidiary is immaterial

Question 17

What must be followed when preparing CFS?

Answer 17

• Accounting policies should be uniform
• Intragroup trading and balances should be eliminated
• NCIs must be presented in the FS
• The year ends should be the same but if this is not possible, they should be within 3 months

Question 18

In the past what could subsidiaries be excluded for but are no longer allowed to be excluded for?

Answer 18

In the past they could be excluded for:
* Severe long term restrictions on control (government coups or war)
* Dissimilar activities
Both of these are no longer allowed

Question 19

Exemptions from preparing group accounts

Answer 19

A parent does not need to prepare group accounts if all the following are met:
1. The parent is itself a wholly-owned or partially owned subsidiary of another entity and its owners, (including those not otherwise entitled to vote) have been informed about, and do not object to, the parent not presenting CFS.
2. Its securities are not publicly traded
3. It is not in the process of issuing securities in public markets
4. The ultimate or intermediate parent publishes CFS that comply with IFRS

Question 20

What date must the entity start being consolidated?

Answer 20

At the date of acquisition (when control is obtained)

Question 21

What date must the entity stop being consolidated?

Answer 21

At the date of sale (when control is lost)